When anti-government protesters rampaged through the Festival Walk in Kowloon on November 12, they smashed glass panels and some of the 200-odd stores in the sprawling mall. They also inadvertently dented one of Singapore's biggest investments in the region.
Acquired by Temasek Holdings in 2011 for HK$18.8 billion, the retail and office property is now part of the assets in Mapletree North Asia Commercial Trust after a reorganisation in 2013. The real estate investment trust tumbled to a 10-month low in Singapore after the news.
The "extensive damage" reflects how the situation has taken a turn for the worst as violence escalates after more than five months of anti-government protests, deepening the slump in retail sales and crashing property values. It is also turning Hong Kong into an investment landmine for investors as the Kowloon district became the latest fiery battleground.
"What is happening in Hong Kong at the moment is that we haven't seen the end of the tunnel yet," said Louis Tse Ming-kwong, managing director of VC Asset Management in Hong Kong. "We now, inter alia, have to take the state of the local economy into our consideration and that it's a bit of a challenge. Investors have too many variables at play to evaluate now to get a satisfactory return, not just for us but for others like Temasek."
Like other global money managers, Temasek has raised its stake in the region in recent years to latch on to China's economic boom. About 10 per cent of Temasek's S$313 billion of assets is denominated in the local dollar, the third largest by currency exposure, according to its 2019 annual review.
The Festival Walk, which will shut down through December 1, is not the first casualty in Temasek's pool of investments in the region. Radical protesters have vandalised retail stores with links to mainland business groups, while bank branches have become frequent targets in running battles with police.
Among Hong Kong-listed entities, Temasek held a stake in China Construction Bank Corp (3 per cent), Industrial and Commercial Bank of China (2 per cent) and AIA Group (3 per cent) as of March 31, according to its annual review published in July.
A botched initial public offering of New York-based WeWork, an office co-working space operator, prompted a US$9.5 billion rescue by SoftBank group last month after a slump in valuations.
Temasek is also one of the major backers of WeWork China, seeding the unit that operates such offices in cities across the country, where vacancy rates have risen amid the slowest economic growth since at least 1992. In Hong Kong, WeWork is reportedly seeking to withdraw from some locations as business travellers and tourists alike gave the city a miss.
Temasek does not have any comment on the matter, a spokesman said in an email in response to a query from the South China Morning Post on its investments in Hong Kong.
The Singapore state investment firm is not alone in bearing the brunt of Hong Kong's political crisis.
Restaurant operator Fulum Group has put up eight properties worth some HK$2.57 billion for sale. Snack food chain Best Mart 360, and Genki Sushi, whose Hong Kong operations are run by Maxim's Group, are rethinking their store leases.
"Demonstrations are just amplifying a more profound problem, which is that Hong Kong is not as attractive a retail destination as it used to be," said Pascal Martin, a partner at OC&C Strategy Consultants, who is based in Hong Kong. "Brands have dramatically cut down price differences between markets which were favourable to Hong Kong."
To be sure, the value of Festival Walk's 1.2 million square feet of retail and office space in Kowloon Tong has soared since the 2011 transaction, based on its most recent valuation of HK$28.75 billion on March 31. Tenant sales amounted to HK$2.4 billion in the six months to September 30, it said in an email reply.
"I view shopping malls as an ongoing business and for long-term investment," said Thomas Lam, executive director and head of valuation and advisory at Knight Frank. The value of Festival Walk should be higher than the 2011 price as the rental and cash flow have increased over the past few years, he added.
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